Search This Blog

Wednesday, February 8, 2023

BTC May Take the Scenic Route

BTC May Take the Scenic Route

Bitcoin / U.S. dollar BITSTAMP:BTCUSD

Regardless of whether you are a bear or a bull, BTCUSD will probably take the scenic route. This may sound like max pain theory, and it probably is.

One follower asked recently for an update on BTC . My last BTC post called for another push higher before going lower. A the time that was published, BTC traded in the upper $18000s and the downward TL (log scale) was just overhead. BTC then moved higher to the downtrend line, paused, and then broke above it. This coincided with major US equity indices and many other risk assets that broke above similar down TLs . This removes some of the certainty that an effective downtrend line provides, i.e., it contains price and provides a reasonable entry point for short positions in a downtrend and reasonable entry point for long positions in an uptrend.

For those who think the break of an uptrend is conclusive signal that price is returning to all-time highs, beware of the history of past bear markets in equities. This happened with SPX in 2000-2002. A chart of SPX from 2000-2002 is also included to show the break of the down TL that eventually failed.

Supplementary Chart A


SquishTrade does not assert that BTC will necessarily follow this pattern in SPX shown by a upside break of its major down TL in the 2000-2002 bear market. Rather, this example serves to illustrate why a trendline break alone isn't necessarily and all-clear signal or a trend-reversal signal on a larger time frame. It just takes away some of the certainty that had existed when that trendline effectively contained price below it, and reversed price every time it rallied to meet it.

Furthermore, a down trendline is not the only measure of a trend. Moving averages, Ichimoku Cloud and others perhaps capture the more flexible nature of a trend, and include a cushion (much like the wider cloud does within the Ichimoku system). Not every market participants market memory is at the same exact angled line. Using a weekly Ichimoku Chart, BTCUSD remains in a downtrend, characterized by the very wide cloud that is red colored (because the Senkou Span B line remains above the Senkou Span A line—bullish would be a green cloud where the SSA line is trending above the SSB line), and confirmed by price trending well below the cloud.

Supplementary Chart B ( Ichimoku Cloud Weekly Chart)

The daily Ichimoku Cloud chart, however, looks quite bullish . Price has broken above the cloud, the cloud has turned green, and things look hopeful on this timeframe. So why is price stalling? Probably because major resistance lies overhead despite what shorter time frames suggest.

Another measure of trend includes VWAPs and long-term moving averages. The VWAP from the November 2021 all-time high lies around 30,000 today. The 50-week moving average, interestingly, lies right at the major resistance level shown by the blue rectangle sitting at mid-August 2022 highs. This 50-week MA (not shown) is at 25,040 today. The 100-week MA is even higher. These are important trend measures as well and lie overhead and slope downward.

Fibonacci retracements help to show where a corrective move may end, and the 50% retracement seems like a very firm resistance level that would not be broken in the near term absent market chicanery. The 50% retracement is at $32,681. In fact, corrective retracements at every degree of trend (here the primary degree is shown) can retrace up to 61.8% or 78.6% of the prior wave. In this case, the prior wave could constitute the decline from the ATH to the November 2022 low, and the retracement could run all the way to $38,900 before failing and returning to lows. Wish more certainty could be provided, but these possibilities remain on the table.

But overall, the technicals remain highly uncertain. Price could tag the $25,000 resistance, move down to the magenta uptrend line and then return to tag some key level in the lower half of the massive trading range that formed BTC's topping pattern in 2021. When price action is this uncertain in an asset, it makes sense to step aside unless one is acquiring for a very long term hold (like a buy-and-hold investor or a "hodler"). Even buy-and-hold investors should incrementally scale into their investment (a key tactical strategy often noted by @SPY_Master) with sound technical and fundamental arguments and invalidation levels too on larger time frames.

In the near term, price could easily move up to tag the resistance from the prior August 15, 2022 high, which may create a final, and more drastic divergence before a pullback. This seems a bit more likely, but again, don't rely on anyone's forecast, watch the price action and the levels if you can. To reiterate, that key level is just overhead, and lies at $25,200.

If that $25,200 level is broken above and held, then the .382 retracement—which coincides with the lower-edge of BTC's topping range—could easily be reached at $27,300-$28,032.

But before price can move any higher, it has to move over the teal-colored VWAP shown on the Primary Chart above. That has been a difficult level for BTC in the last couple weeks. BTC seems to be chopping above and below it. In the bulls favor (short term), that VWAP is flattening however.

The intermediate-term uptrend is defined by the magenta line on the Primary Chart above. A pullback to this line would actually be reasonable and healthy consolidation for bulls if this uptrend is to continue and actually attack the larger downtrend on weekly Ichimoku Charts or the downtrend as represented by the VWAP from the all-time high (dark blue at $30,000 today).

Finally, consider that major negative momentum divergences have appeared on the daily chart . This doesn't mean price will crash suddenly to new lows, but it does suggest the upward move is in its final stages right near major resistance levels. This could lead to a sharp pullback at a minimum to the uptrend line. Or it could break that uptrend line if enough fear and force allow. That should be watched closely. If the magenta uptrend line is broken decisively, watch out for a new low.

Hope this post helps provide new perspectives about what levels to watch in the coming weeks, and what price levels are important to consider.


Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.

Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.

DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.
Via TradingView Ideas

No comments: